Ballmer Slams IBM, Novell Partner Efforts With Linux, SMBs

Microsoft CEO Steve Ballmer on Tuesday slammed the Linux and SMB partner initiatives of IBM and Novell as dead ends for solution providers and ISVs.

At Microsoft's annual partner conference in Toronto, the rambunctious CEO told thousands of its global partners that commercial software, in combination with Microsoft's channel model and go-to-market plan, offers the best value proposition for service partners, solution providers and ISVs.

"Who do you go-to-market with [concerning] Linux?" Ballmer asked the capacity crowd. "Go-to-market with IBM? You'll be competing against IBM services. How does IBM sustain its investment in Linux when the only money they make is on services? They make no money on software; they make no money on hardware. They make money only in services."

Ballmer also ridiculed IBM's entry into the SMB market. He said IBM may ship a set of products packaged for small businesses but claimed the enterprise company can't scale down to the small-business or midmarket sector.

During his hour-long keynote session at Toronto's Air Canada Centre, the CEO fielded numerous questions about open source, Microsoft's negotiations with SAP, Microsoft Business Solutions (MBS), the next-generation Windowsplatform (code-named Longhorn) and CRM licensing plans. But Ballmer's rant against open source, Linux and competitors IBM and Novell elicited the most cheers and laughs from partners in the audience. Redmond, Wash.-based Microsoft estimated that 5,500 partners attended the conference this year.

"This is the year of opportunity. Let's go after the Novell installed base and help them come into the modern world," Ballmer said, urging Microsoft partners to poach Novell NetWare customers and IBM Lotus Notes customers. "And I don't know what the heck IBM is doing with these [Notes customers]. I've seen more Notes-to-Exchange conversions in the last year than ever before. These two bases are ripe for winning.

"It's either the iced tea or--I'm a bit of a caged animal on this--but you all have to make money today," Ballmer said as he paced the stage. Solution providers can be more profitable because of the Windows-Office value proposition and installed base, which Microsoft estimates at more than 600 million desktops, he noted.

"There's nothing magic about Linux on the desktop and server," Ballmer said. "We have better TCO [total cost of ownership], more applications and more partners. I don't think we need to change, but to get the pedal to the metal and keep accelerating."

In spite of new threats from Linux competitors on the desktop, the CEO said Microsoft continues to dominate in the software industry and is "growing faster" than its competitors and winning most of the server deals and "virtually all" of the desktop customers. He also claimed that Microsoft's Windows model is better for partners because it offers better TCO than open source, customer indemnity, and many more applications and device drivers.

One Microsoft partner at the keynote said he appreciated Ballmer's points about Linux but not his assertion that Microsoft won't reverse its unpopular decision to broadly license and distribute Microsoft CRM. "He articulated the value proposition of Windows over open source very well,' said Monty G. Myers, president and CEO of Eureka Solutions, a Microsoft Certified Partner in Austin, Texas. "I was disappointed about CRM."

Rather than deliver a long-winded keynote, Ballmer fielded a host of questions from partners about the failed acquisition talks with SAP, the integration of Microsoft Business Solutions, Microsoft's small-business efforts and vertical push and the company's plans for the Longhorn Windows client and server, due in 2006 to 2007.

Looking to better serve its enterprise customers, Microsoft did hold talks with SAP at one point, but "nothing about that takes anything away from where we are with MBS in the midmarket and SMB space," Ballmer said, promising partners that the company's allegiance to partners is clear. "If SAP is competing in the midmarket, we'll compete. We'll partner with SAP [in the enterprise], but if an MBS partner goes up against SAP, we're behind the partner 100 percent."

Ballmer also acknowledged that integrating MBS partners and products with the Windows classic partners platform has been "fraught" with challenges, but he said the end result will pay off big. Initially, Microsoft expects integration of MBS with Office and SharePoint so that customers can view line-of-business applications from within Excel and other Office applications and integrate MBS applications with the SharePoint Portal Server.

Ultimately, the platforms will be more tightly integrated by having a consistent programming model across the MBS and classic software stacks, but partners will have to wait some time before that materializes. "It's harder, and it takes longer. But we are making progress," Ballmer said.

Small businesses are also top of mind for Ballmer, who pointed to a problem in the services business model at the low end. "It's a problem of critical mass," he said. "The services infrastructure is there, but it's not as robust [for small businesses] as it is for larger companies."

Microsoft is considering a new model for customer segmentation based on IT complexity. In this case, many small businesses with one or no servers may have special services and products, Ballmer said.

Ballmer also predicted that the hosting model will be "even more important to the small business than the enterprise, because small businesses can't afford customization." He also said the small-business space is "on the top of our list," but he noted that "it may take us a while to get where want to be."

Microsoft's CEO also touched on other pain points in the channel. For instance, Ballmer said Microsoft is aware that some partners are confused about the company's increasingly vertical approach to customers. But they should have no fear that Microsoft is embarking on a model similar to IBM Global Services, he noted.

And repeating the same pledge he has made at past partner conferences, Ballmer said Microsoft has no interest in the services business but is trying to get more "intimate" with the unique needs of customers. Partners will remain safe whether they choose to take a vertical approach or adopt a traditional services model, he said.

"We have to solve that problem for horizontal partners," Ballmer noted. "But it will be easier than getting customer intimacy without verticalization."

Ballmer also said Microsoft is working to help its local district offices better help ISVs and partners market across geographies.

One ISV in the vertical space was glad to hear that Microsoft's CEO is aware about the pain of ISVs who want to be integrated into Microsoft's go-to-market sales and marketing efforts.

"All ISVs have been frustrated working with Microsoft because it's such a large organization," said Richard Sheng, product marketing manager at Trend Micro, an antivirus software vendor. "They have this partner ecosystem manager, but we're not getting the help we need in how everyone goes to market. I'm on the outside."

Ballmer said Microsoft has more work to do on the security front and pledged that the Windows XP Service Pack 2, slated be released to manufacturing in August, and the Network Access Protection architecture, unveiled earlier Tuesday by Microsoft security executive Mike Nash, will go a long way toward solving important security issues.

In addition, Ballmer said, the Longhorn platform will provide a wealth of new partner opportunities going forward, yet it will require investments from both parties. "We have a lot of the burden, but there has to be a mutual investment," he said, acknowledging that the platform shift will be disruptive to partners' businesses.

Still, Ballmer noted, partners stand to get the biggest bang for the buck on Windows today and tomorrow than on open-source Linux from Novell or IBM. "We're growing faster than anyone out there," he said. "If we make these investments work for the customer and drive satisfaction, we can grow our businesses together."